Don’t let dealers take you for a ride with motor insurance

Some dealers and manufacturers are promising free car insurance to customers this festive season. They are offering to pay premiums for up to three years. The offer is enticing to buyers as it helps them save money on the premium on this mandatory cover. Also, it helps them buy insurance on the spot. However, insurers point out that it is not possible to offer a motor policy for three years. 

“Regulations do not permit motor policies for tenure of more than a year. To our knowledge, no such multi-year product has been approved. The dealers are merely giving an undertaking to fund the premium when the policy comes up for renewal. They might have made provisions for these payments,” says Mukesh Kumar, head of strategic planning and marketing, HDFC ERGO. 


According to automobile industry experts, dealers are bundling these policies with the entire sales package, and offering to pay the premiums instead of providing a cash discount. “Strictly speaking, these are not free insurance covers, as an insurance policy can never be offered free. From the insurance company’s point of view, the requisite premium is charged,” says Madhukar Sinha, national head – personal lines, Tata-AIG General Insurance. “Many such bundled policies are plain-vanilla policies without add-on covers like depreciation, return of invoice, etc. You need to understand the scope of coverage being offered before signing up,” he says. Besides, since the dealer would have tied up with a particular insurance company to offer the package, your choice will be restricted. 

These policies may score high on pricing and the convenience factor. “Pricing could be better than what is otherwise available in the market. Also, in the event of a claim, the dealer is likely to be more supportive and manage the liaison with the insurance company and surveyor,” says Arvind LaddhaCEO, Vantage Insurance Brokers. However, according to experts, customers should take a close look at these policies before signing up for them. “Most car insurance policies offered free do not carry the necessary riders to provide wholesome coverage for a car,” says Yashish Dahiya, CEO, “The key factor to consider is the coverage of the policy in terms of riders like depreciation shields, engine protector, 24X7 spot assistance and vehicle replacement advantage.” That is why you should study the policy to find out whether it is merely a third-party cover, comprehensive policy or a fully-loaded package with add-on covers. “The customer needs to study the coverage closely. For example, it is important to have a policy on zero depreciation as the deductibles could be very high on claims under such a policy,” says Arvind Laddha, CEO, Vantage Insurance Brokers. So, compare policies available in the market with the bundled cover being offered to you before making a decision. 

Also, if you are signing up for a three-year policy, find out how the dealer plans to honour the commitment. “Motor insurance policies offer standard no-claim bonuses over five years. Find out how a claim will affect the arrangement. Things could get complicated, so it is better to bargain for a cash discount instead of the bundled cover, if possible,” says Kumar. For example, it will be difficult to ascertain the exact discount you would get in the form of free insurance, as your claims – or their absence – impact the subsequent year’s premium. “A customer, who does not make a claim in a particular year gets a No-Claim Bonus (NCB), which lowers the premium for the subsequent year. Similarly, if he makes a claim, he needs to pay a higher insurance premium,” says Dahiya


Source: The Economic Times

Date: 30th October 2013

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